Based on a true story: How to Build and Secure Wealth Through Knowledge?
As one of my favorite authors and business mentors Simon Sinek says. Let’s start with the WHY?
Why you ask? Because Wealth starts with Knowledge
So now that we figured out the WHY let’s dive into the HOW.
How to Build and Secure Wealth Through Knowledge?
noun: knowledge plural noun: knowledges
- facts, information, and skills acquired by a person through experience or education; the theoretical or practical understanding of a subject.: “a thirst for knowledge” “her considerable knowledge of antiques”.
- synonyms: understanding, comprehension, grasp, command, mastery, expertise, skill, proficiency, expertness, accomplishment, adeptness, capacity, capability, know-how, learning, erudition, education, scholarship, schooling, wisdom, familiarity with, acquaintance with, intimacy with, information, facts, intelligence, news, reports, hot tip, info, (the) lowdown
Most of my life I have studied how successful entrepreneurs have amassed fortunes and over time secured wealth through knowledge. I obsessively read up on, follow, study and more importantly learn from these business titans every single day. One business sector that i’m particularly drawn to is real estate and how real estate moguls have accumulated real estate while earning income in the process.
I didn’t know it at the time but it was my late father who taught me a very basic but important business lesson. “Son, always remember that in business, if you can own it you should buy it”. When he passed away he had almost paid off 50% of our old outdated but functional commercial office, I was 19. Little did my brother and I know that this single asset would be the seed money that would instigate our real estate curiosity and help securing our company’s future through knowledge. For over a decade now we have been investing in various real estate projects. One such real estate investment was building a very simple and cost efficient 60 000 sq.ft light industrial commercial building with multiple tenants that gives us a positive surplus cash flow every month and will be mortgage free in 2022. If you do the math that’s not a bad return and that’s just one example.
Investing in commercial real estate is a sustainable wealth builder because it accomplishes 4 monster wealth multipliers.
1) + Cash Flow. When a property is built or purchased and managed correctly with the right kind of leverage, it will produce $$$ in excess of expenses, capital investments, and debt leaving the you with + cash flow. Rents less all expenses = your net income — subtract the debt along with all long-term repairs, and that equals your cash flow.
2) Appreciation. Pick the right property or land to build your rental property in the right location, in a prime business area near the main highway that will continue to be strong into the future and you are almost guaranteed appreciation. Ultimately rents determine the real value of the property) the property’s value increases and this is called “appreciation.” Real estate as a whole has historically increased in value in Canada. Income producing real estate increase in value over time.
3) Mortgage Pay-down. While many people believe all debt is bad debt, in reality, a commercial mortgage can be your friend when you don’t abuse it. When we purchase land or a property at we always use a mortgage. Depending on the property we will borrow 60–70% and use the property’s income to pay the mortgage off within 12 to 15 years.
Essentially. this means the tenants are paying your mortgage or the debt, allowing you and your group to build secured wealth automatically.
The concept is similar to your home being paid off over 25 years but instead of you paying it off it’s actually your tenants who are paying your mortgage down and you earned cash flow to boot in the process.
Let’s pretend for a second that you purchased a small industrial complex for $1,000,000 with a 25 year mortgage for $700,000. Your $300,000 earns 8% a year after all expenses, earning you $24,000 a year in + cash flow. And let’s assume the property doesn’t appreciate (if you’ve done your due diligence trust me it will appreciate exponentially).
In the year 2041 you will own the property mortgage free for which you put $300,000 down and earned 100% of your money back in the in 12 to 15 years. It’s worth a million dollars and you paid ZERO!
Twelve years that’s impossible, is it? Now imagine you were able to pay off 15% of your mortgage debt at each anniversary you could own the property free and clear within 12 to 15 years. This is possible through the BDC.
4) Time is money. Most people don’t fully understand the real wealth creator which is time and this is how you build and secure wealth. The rents your tenants pay you between now and until you sell the property will inevitably go up and that is what ultimately determines the value of the property.
If rents only go up 3% each year for the next years and you had multiple tenants when you bought in the year 2017 rented was $10 000 per month, your gross potential income in 2042 will be $25 000 per month less expenses and you have no debt.
Every year you will earn what you originally bought ($300 000) the property for in 2017.
For many more reasons, I gravitate towards light commercial type buildings because they are less costly and easier to design build or revamp. They require less time, energy and attention since the tenants are more focused on their business then their garage door not opening properly.
It’s a given that you have to buy the right properties in the right areas, manage them right and sell at the right time. Further, managing your cash flows will never be a walk in the park amid rising interest rates, property taxes, and more stringent mortgage rules but know this buying real estate assets and owning them for a long time is a proven way of creating wealth.
Many studies have shown that owning and managing real estate over the long run has generated excellent returns.
So now that you have the knowledge, It’s up to you to do your due diligence and go to work. What are you waiting for.
Simon Storm Frigon
Third Generation Design Rebuild Craftsman | CEO @ cdrg+RedTeam | Rebuilding Environments by Design #Rebuild4Life